Price Leadership and Vertical Relationships

Philippe Cyrenne

Canadian Journal of Economics, 1997, vol. 30, issue 1, 235-45

Abstract: In this paper, price leadership in vertically related markets is examined. In contrast to the analysis with only a retail stage, the author shows that the strategic advantage normally associated with retail price followership may not arise. The reason is that in vertically related markets, price leadership at the retail stage alters the outcome at the manufacturing stage in a way that, offsets the strategic advantage usually held by the retail price follower. Specifically, the retail follower earns greater profits than the leader only when products are poor substitutes; for closer substitutes, the price follower earns fewer profits.

Date: 1997
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